RBI Holds Steady: Repo Rate Remains at 6.5% Amid Economic Optimism
In a pivotal announcement that marks the continuation of its cautious monetary stance, the Reserve Bank of India (RBI) has declared that the policy repo rate will be maintained at 6.5%, a decision stemming from the latest deliberations of its Monetary Policy Committee (MPC). This resolution, announced by RBI Governor Shaktikanta Das on April 5, signifies the seventh consecutive maintenance of the rate at this level, underscoring the central bank commitment to stabilizing the economic environment.
In alignment with its economic outlook, the RBI has preserved its growth projection for the fiscal year 2024-25 at an optimistic 7%. This forecast delineates a steady economic expansion, with the June quarter expected to see a growth of 7%, followed by a slight moderation to 6.9% in the September quarter, before rebounding to 7% in the subsequent quarters. This trajectory, however, represents a moderation from the 7.6% expansion estimated for the preceding fiscal year.
The inflation outlook presented by the RBI offers a measure of relief, with the Consumer Price Index (CPI) inflation for the fiscal year 2024-25 anticipated to average at 4.5%. This projection is notably lower than the 5.4% inflation rate recorded in the previous fiscal year, suggesting a more benign inflationary environment ahead. The latest CPI inflation rate recorded in February stood at 5.1%, indicating a gradual easing of price pressures.
The announcement came as the MPC concluded its two-day review meeting, which began on April 3. This meeting marked the continuation of a policy of steady rates, as the central bank had previously elected to maintain the status in its last review held in February 2024. This pattern of decisions reflects the RBI strategic approach to balancing growth considerations with the imperative of inflation control.
In its first bi-monthly policy statement for the fiscal year 2024-25, the RBI provided several key updates, reinforcing the stability of the Indian economy. Among these, the bank highlighted the robust inflow of foreign portfolio investments (FPI), which reached $41.6 billion during 2023-24, marking the second- highest level of FPI inflow since 2014-15. This influx of foreign capital underscores the attractiveness of the Indian market to global investors.
The RBI also addressed the issue of the current account deficit, projecting it to remain at levels that are both viable and manageable. This assessment suggests a balanced external sector, contributing to the overall economic stability.
The Indian rupee performance was another focal point of the RBI statement. Despite fluctuations in the global financial landscape, the rupee has remained largely range-bound, exhibiting stability when compared to its peers in both emerging markets and advanced economies. This stability, particularly noted in the fiscal year 2023-24, positions the INR as one of the most stable major currencies, reinforcing confidence in India economic management.
Looking ahead, the RBI has scheduled the next MPC meeting for June 5 to 7, 2024. This upcoming meeting will be closely watched by markets and policymakers alike, as it will provide further insights into the RBI monetary policy direction in the face of evolving economic conditions.